Suggested Answer:A🗳️
The Certainty equivalent value is the expected guaranteed value of taking a risk. It is derived by the uncertainty of the situation and the potential value of the situation's outcome. Incorrect Answers: B: The risk premium is the difference between the larger expected value of the risk and the smaller certainty equivalent value. C, D: These are not valid answers.
A-
The certainty equivalent is a guaranteed return that someone would accept now, rather than taking a chance on a higher, but uncertain, return in the future. Put another way, the certainty equivalent is the guaranteed amount of cash that a person would consider as having the same amount of desirability as a risky asset.
A risk premium is the investment return an asset is expected to yield in excess of the risk-free rate of return. An asset's risk premium is a form of compensation for investors. It represents payment to investors for tolerating the extra risk in a given investment over that of a risk-free asset.
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10 months, 1 week ago